Reliability as a Requirement for Managing Directors
In many regulated sectors of the economy, trade law requires that the trader or the person entrusted with managing the business be reliable. The assessment is made on the basis of established facts and an evaluation based on those facts as to how the person concerned is likely to conduct themselves in the future. This assessment is not static, but may change over time.
Personal Suitability under Stock Corporation and GmbH Law
A managing director or board member of an Aktiengesellschaft or a GmbH may only be a natural person with full legal capacity. For an Aktiengesellschaft, this follows from § 76 paragraph 3 AktG (German Stock Corporation Act) and, for a GmbH, from § 6 paragraph 2 sentence 1 GmbHG (German Limited Liability Companies Act). It is now generally accepted that, in principle, persons without German citizenship may also be appointed as managing directors or board members.
In addition, there must be no statutory impediment to appointment. In other words, a person must not be disqualified, § 76 paragraph 3 AktG, § 6 paragraph 2 sentences 2 to 4 GmbHG. A criminal conviction or a prohibition from engaging in a trade may preclude appointment if the statutory requirements are met.
Trade-Law Reliability in Addition to Corporate-Law Requirements
In addition to suitability under corporate law, an independent requirement of reliability under trade law may apply in numerous sectors. This particularly concerns activities in which special trust of the public or customers is claimed, or in which there is an increased risk of abusive or criminal conduct.
If the trade is conducted by a company, the managing director or board member of the corporate entity operating the business must be reliable. This is particularly significant, for example, for banks and insurance companies. For managing directors and board members of banks, § 25c paragraph 1 sentence 1 KWG (German Banking Act) contains corresponding requirements; for insurance undertakings, § 24 paragraph 1 sentence 1 VAG (German Insurance Supervision Act) does so.
There is no uniform concept of reliability under trade law that is generally defined by statute. Where no special statutory rule exists, the purpose of the respective access restriction must be considered. As a rule, reliability does not have to be positively proven; it is presumed as long as there are no facts from which the unreliability of the person concerned can be inferred.
In the area of state supervision of financial service providers, a managing director or board member may be regarded as unreliable if personal circumstances, based on general life experience, justify the assumption that they may impair careful and proper activity as a managing director or board member. In particular, the following aspects of personal conduct and business practices are taken into account:
- criminal-law aspects,
- financial circumstances,
- asset-related circumstances,
- matters relevant to regulatory supervision.
On this factual basis, a prognosis is made regarding future conduct.
Loss of Reliability after Appointment
If circumstances change after the appointment of a managing director or board member, the question arises whether and how this affects the office. A distinction must be made between disqualification under corporate law and unreliability under trade law.
Automatic Termination of Office in the Case of Statutory Grounds for Exclusion
If, after appointment, a ground for exclusion within the meaning of § 76 paragraph 3 AktG or § 6 paragraph 2 sentences 2 to 4 GmbHG arises, the office of managing director or board member ends by operation of law at that time. The Bundesgerichtshof (BGH, Federal Court of Justice) has ruled this for corresponding cases. A separate removal by the shareholders’ meeting is then not required.
The knowledge of the corporate body that would otherwise be responsible for removal is irrelevant in this respect. In the case of a GmbH, this is usually the shareholders’ meeting; in the case of an Aktiengesellschaft, the supervisory board. In this context, legal transactions are protected by § 15 HGB (German Commercial Code).
No Automatic Termination of Office in the Case of Unreliability under Trade Law
The situation is different if reliability under trade law ceases to exist after assumption of office. In this case, the office does not end automatically. This follows by converse inference from § 76 paragraph 3 number 2 AktG and § 6 paragraph 2 sentence 2 number 2 GmbHG.
Only professional or trade prohibitions imposed by a court judgment or by an enforceable administrative decision give rise to the disqualification of the managing director or board member. Examples include a prohibition under § 35 GewO (German Trade Regulation Act) or under § 70 StGB (German Criminal Code). Below this threshold, i.e. before a corresponding administrative measure or court decision, no disqualification occurs.
However, the competent supervisory authority may demand removal. In banking supervision law, corresponding powers arise in particular from § 36 paragraph 1 sentence 1 KWG in conjunction with further provisions of the KWG. In insurance supervision law, § 303 paragraph 2 number 1 VAG and § 24 paragraph 1 sentence 1 VAG contain the relevant provisions.
Removal in the Event of Lack of Reliability
If the corporate body responsible for removal becomes aware of circumstances from which the unreliability of the managing director or board member can be inferred, removal may be considered. The requirements depend substantially on the respective legal form.
Free Removability in the Case of a GmbH and Cooperative
The managing director of a GmbH may be freely removed, subject to any deviating agreements. Under § 38 paragraph 1 GmbHG, a special reason is generally not required. The same applies to the management board of a cooperative under § 24 paragraph 3 sentence 2 GenG (German Cooperative Societies Act), insofar as no other rules apply.
Good Cause in the Case of the Management Board of an Aktiengesellschaft
Stricter requirements apply under stock corporation law. The removal of a management board member, more precisely the revocation of the appointment, requires good cause under § 84 paragraph 4 sentence 1 AktG. § 84 paragraph 4 sentence 2 AktG lists examples of good cause, including the inability to conduct management properly.
Such inability may exist if professional or personal deficiencies make it impossible for the office holder to continue exercising their function. This also includes the loss of statutory suitability requirements. If reliability under trade law ceases to exist in a company in which such reliability is required, a management board member may become unable to continue exercising the office.
The Oberlandesgericht Stuttgart (Higher Regional Court of Stuttgart) considered removal for good cause possible in such a context. The supervisory-law provisions in the banking and insurance sectors also presuppose that the addressee of an official order generally has the legal possibility of removing an unreliable managing director or board member. This is because the supervisory authority may, subject to the statutory requirements, demand the removal of a managing director or board member if that person is not reliable within the meaning of supervisory law.
Judicial Review of the Factual Basis
No different conclusion follows from a decision of the Bundesgerichtshof (BGH, Federal Court of Justice). For the question of whether there is good cause for revoking the appointment, it is not a merely alleged loss of trust by the party giving notice in the reliability of the person dismissed that matters. Rather, the decisive factor is the actual events intended to support the corresponding allegations.
The facts on which the finding of unreliability is based are subject to judicial review. The proven facts must justify the prognosis that further violations are likely in the future. However, the court does not replace the prognosis of the competent corporate body with its own assessment, but examines whether the prognosis made was justifiable on the basis of the established facts.
Termination of the Service Agreement after Removal
The revocation of the appointment as a corporate officer generally does not automatically lead to the termination of the service agreement. The corporate office and the service agreement must be distinguished from one another. A different consequence may arise if the service agreement contains a coupling clause under which the revocation of the appointment in certain cases also operates as termination of the service agreement.
Corporate-Law Ground for Removal Is Not Always Sufficient
Good cause for removal in the corporate-law sense does not automatically also justify extraordinary termination of the service agreement. Rather, good cause within the meaning of § 626 paragraph 1 BGB (German Civil Code) is required.
Accordingly, there must be facts on the basis of which, taking into account all circumstances of the individual case and weighing the interests of both sides, the company cannot reasonably be expected to continue the service relationship until ordinary termination. The requirements for termination must therefore be examined independently.
Disqualification and Personal Grounds for Termination
If the office of managing director or board member ends automatically by operation of law due to disqualification under § 6 paragraph 2 GmbHG or § 76 paragraph 3 AktG, the service agreement can generally be terminated for good cause. Even if unreliability under trade law prevents the exercise of the office that the person concerned owes under the service agreement, this will usually constitute an important personal ground for termination.
As part of the required weighing of interests, it must be considered to what extent the factual circumstances constituting the good cause are attributable to one side or were at least caused by that side. If the reasons for the unreliability lie in the person of the managing director or board member, this balancing exercise will generally be to the detriment of that person.
Frequently Asked Questions
When does the office of a managing director or board member end automatically under § 76 paragraph 3 AktG or § 6 paragraph 2 GmbHG?
The office ends by operation of law if, after appointment, a statutory ground for exclusion within the meaning of § 76 paragraph 3 AktG or § 6 paragraph 2 sentences 2 to 4 GmbHG arises. A separate removal by the competent corporate body is then not required.
Can a management board member be removed under § 84 paragraph 4 AktG due to lack of reliability under trade law?
In an Aktiengesellschaft, revocation of the appointment requires good cause. If reliability under trade law ceases to exist in a company in which it is required, this may make it impossible to continue exercising the office and may constitute good cause.
What practical consequences does the lack of reliability of a managing director or board member have for companies?
Depending on the case, the office may end automatically, removal by the competent corporate body may be considered, or a supervisory authority may demand removal. The service relationship does not always end automatically as a result, but may be subject to extraordinary termination if the requirements of § 626 paragraph 1 BGB are met.
Corporate-Law Assessment by MTR Legal
Questions regarding removal, termination of managing directors and board members, and supervisory-law reliability requirements regularly affect several levels of corporate, trade and service contract law. MTR Legal Rechtsanwälte supports companies, investors and high-net-worth private individuals in the legal assessment of such constellations in an entrepreneurial context. Further information can be found at Legal advice in corporate law.
